Buying a new house and making old house BTL - is this a bad idea?

[NonestopPeppaPig]

We have seen a house nearby that is perfect for us, it is up for auction mid June.

We have previously tried to sell our house twice but each time it has fallen through. We would not have time to try and sell this house and buy the auction house, but I was wondering if it was feasible to make our current house a BTL and buy the auction house to live in?

We earn around 62k together (about 67k with overtime), owe 46k on our current house, have around 50k cash, around 180k equity in current house.

The auction house is up for 330k, but I understand things can go much higher.

Is it stupid even pondering this?

Have you worked out the costs and income, understood the tax situation, and estimated how much time and effort you need to put into it?

If not, you really need to do this. We stopped renting out a family home recently because even though we were getting £3,000 per month rent it just wasn’t worth it in the end.

We paid tax at 45% on the income, couldn’t offset the mortgage interest against it, and were having to pay out a significant amount in maintenance and repairs each year above what we’d be paying out if we lived in it ourselves.

We now use it ourselves as a second home.

no stupid at all, but consider carefully the BTL option, it is very hard work,

Tenants have all the legal rights, could you afford it for at least 6 months if you have a problem tenant that takes that long to evict, (could be longer.)

Remember BTL income is taxed before mortgage interest is allowed. Very little can be offset against tax. (Not such problem without mortgage)

Legal requirements for letting are now massive, wired smoke alarms, co2 detectors, gas safety checks, HMO licensing if you let to three seperate people, legionaires risk assessments, repairs, maintenance etc...is your property in very good condition? if not you will have to spend considerable amounts to get it up to standards required.

Are you prepared to be called on Sundays, holidays, nights to suddenly have to find tradesmen to fix, leaks, boilers etc?
If not keep in mind agents charge hefty management fees to do this for you.

You really need to think of a BTL as a second job and number crunch carefully.

Good luck

We did this but we had paid off mortgage on existing house, and then borrowed against it to get deposit for new house.
Can you afford the house at auction?

Plus the extra stamp duty on the new house. Can overlap but need to sell within a time limit to have the extra refunded.

It doesn't sound like enough to me. You would need permission from your mortgage lender to let your existing house. Are you planning on borrowing more on that house to fund the second purchase? Are you confidant that you can pay all mortgages even if interest rates go up and your tenant defaults on rent?

We did this. But our mortgage went up significantly on original property (flat) because we had to change to a different, btl deal with our lender. The sums need to add up though. A good mortgage broker can help you figure out how feasible it is. Ours was/is brilliant and I’m happy to pass on his details if you want to pm me.

It’s worth it for us because the flat is very easy to rent out, we do it privately (so no agent fees), have lovely tenants, it requires minimal maintenance and when it does we have a brilliant handyman type person ‘on call’. And for us it’s a long term ‘investment’ and/or we might move back there one day. So no immediate capital gains tax concerns.

It’s much harder to do now - you will need to pay extra stamp duty on the new property. Also as someone said above, you can’t deduct mortgage interest before tax.

You would also need to factor in paying capital gains tax if and when you sell whichever property isn’t your main home.

You could try one of the auction finance companies to see if you would be able to take out a short term bridging loan to enable you to buy the new property. They will give you an AIP so you know all the costs/fees etc (which will be high because of the nature of the loan). You could then put your house up for sale and use the equity from that plus remortgage the new property to clear that loan.

You need to bear in mind why the other house is being sold at auction rather than a normal sale though. You can arrange to have a survey done but that's at your cost with no guarantee you'll be successful with your bid if you decide to proceed. You also have to factor in the SDLT additional charge as it would be a second property.

It's called let to buy. We did it once. You'll need to leave 25% minimum LTV in the old house and you borrow the other 75%. To get this the rent needs to be 125%+ of the mortgage repayments.

Then you need a deposit for the new house - and to be able to afford the mortgage on the new house.

We did it with Leeds Building Society although it was several years ago. A broker should be able to advise.

Talk to a broker about Let To Buy.